When a client in Arizona drags their feet on a progress payment, you act as an unsecured lender for their project. Every day that invoice sits unpaid past its net terms, your cash bleeds out as carrying costs. Understanding the state's prompt-payment statutes and allowable interest rates is fundamental for protecting your operating margins.
Private owners must pay within 7 days of billing certification (usually 21 days to certify, so 28 total). Primes pay subs within 7 days.
Maximum Allowable Interest (Private): 1.5% per month (18% annually)
Public owners must pay within 14 days of certification. Primes pay subs within 7 days.
Maximum Allowable Interest (Public): 1% per month (12% annually)
Consider a scenario where you are owed $25000 on a completed milestone, and the payment is 30 days past the statutory deadline or your contract terms. Based on common statutory limits, the carrying cost you might legally be entitled to recover can accumulate quickly. For example, if you applied an appropriate rate under Arizona law, the delay could cost the client an additional $375.00 in interest.
You aren't just slapping an arbitrary fee on the invoice; you are recovering the actual financial damage caused by the delay, backed by state legislation.
To protect yourself, your master service agreement must include a clear, unambiguous clause regarding late payments. A recommended practice is to cite the maximum allowable rate under Arizona law as a cap, defaulting to the statutory rate if your contract rate is deemed usurious.
Interest terms must be consistently communicated. They should be printed on every single invoice you send, typically near the total due. Using a clear internal standard operating procedure (SOP) ensures these rules are applied objectively, removing emotion from the collections process.
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